“Why gamble on long shots when you can secure steady 9%, 10%, and 18% payouts?

“Thanks to an obscure 1987 tax reform, the 3 energy companies you’ll read about below are legally required to hand you supercharged cash payouts on a regular basis — no matter what happens to the price of oil and gas.

“Today’s top insiders and in-the-know investors are using them to boost their income… rescue their retirements… and grow rich — in spite of the economy. If you’ve got 20 minutes and a brokerage account, you can join them today…”

This “could it really be so easy” ad rolls in from James Early at the Motley Fool’s Income Investor newsletter, a letter that had a change of leadership a couple years ago — right around the time that the Stock Gumshoe started tracking their teaser picks.

It’s been a tough year for many of the picks touted by Income Investor in the recent past, particularly for the very heavily touted CapitalSource that they pounded the table about a year or so ago as the best pick for your IRA, but also for Veolia Environnement and several energy stocks that they’ve teased us with in recent years, including Petrobras, Statoil (now StatoilHydro) and Sasol … but many folks believe that this is a good environment for picking up solid dividend-paying companies, so let’s have a look.

Income Investor has been the second-best Fool newsletter over the past three years, according to Hulbert — second only to the flagship Stock Advisor. Of course, all of them have lost a lot of money on average, but haven’t we all? Coincidentally, Income Investor is also the second-ranked Motley Fool newsletter according to Stock Gumshoe Reviewers — though in this case it’s second to Motley Fool Pro, a much newer service, and that’s based on just one review.

But really, we’re here to find some high-income stocks — and Early claims to have a few doozies.

The spiel is a good long one, as with most Motley Fool ads — not quite Tolstoyish like some others we’ve reviewed, but certainly enough to give your friendly neighborhood Gumshoe a bit of a headache.

And, as seems to be the style these days, they throw out the actual name and ticker for one stock idea and talk about it, and then claim to have two more just like it — or even better — that are yours for the low low price of a subscription to their service. If that’s an attempt to throw the Gumshoe off the scent, varlets, then stand back … I know a tease when I see one.

The ad first teases that the way to rebuild your portfolio is by investing in “midstream profit partnerships” …

“… buried deep in all that bureaucratic doublespeak [the tax code] is a crucial provision that grants special tax exemptions to companies where at least 90% of earnings come from “qualified income,” which is defined as…

“The processing, refining, transportation (including pipelines transporting gas, oil, and similar products), or marketing of any mineral or natural resource.”

“This tax break was originally designed to spur the development of America’s energy and natural resource infrastructure — which it did. But the unexpected benefit was that it created a virtually unstoppable profit engine for in-the-know investors.”

So those who are familiar with income investing probably recognize immediately that these “midstream profit partnerships” are more commonly referred to as Master Limited Partnerships (MLPs) … and hearing them referred to with an invented name is no big surprise, I’ve written about these being teased before as Bonded Trusts, Reagan Stimulus Dividends, and the American Oil Pension, among others.

He then goes on to tell us all about one of those partnerships, Magellan Midstream Partners (MMP) — that’s where we learn that we get our one free idea, and we’re supposed to pay for the other two. Magellan is described thus:

“undisputed king of oil and gas pipelines, yields a healthy 9%, and could realistically double your money over the next few years.”

I won’t argue with that, though I think it’s quite likely that there are a few folks who might dispute the “king” part — Magellan is an old and well-established MLP, but there are several that are larger and arguably more “regal” (some examples might be Enbridge, Kinder Morgan, Enterprise Products, TEPPCO or ONEOK, all of which are similarly sized to Magellan or larger, some much larger).

Early “conservatively” values the shares at $60, which is twice the current price, and they do yield about 9% now (many of these MLPs had yields down around 5-6% back in 2007, when investors were much more enthusiastic about them, so all of them could see large share price pops if the yields sunk again to those levels, all else being equal. That’s a big “if” and a big “equal.”)

But they told us all about Magellan in the ad, so we want to find the two others that they’re teasing us about — they reveal them in some special reports that they’re apparently calling “America’s Hidden Profit Engines” and “Pipeline to Profits.”

The Gumshoe, of course, is now revealing them in a special report I’ll call, “just keep reading and be patient, we’ll get there.”

Here are the clues for the first one:

“Exclusive rights to a natural gas mother lode — and a whopping 18% yield!

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“While some partnerships are scrambling to expand the capacity and reach of their oil and gas networks, this one has already secured a major claim that could increase its earnings sixfold!

“You see, by law companies must treat the water they use to blast natural gas out of the ground. This requires that they secure sewage treatment rights in areas in which they plan to drill.

“Well, this one has already secured permits for 3 water treatment facilities above what many experts consider to be the ‘mother lode of eastern U.S. gas reserves.'”

We’re also told that it has “priority access” to a sister company’s gas transportation system, and we go on to get a few more tidbits …

“With legacy holdings in the Appalachian Basin, this company is able to offer consistent production — and more importantly a rich, sustainable payout.

“Not to mention, even after the recent market run-up, shares of this partnership are still selling at a major discount — and its yield still sits at an incredible 18%.

“Granted, when a run-of-the-mill dividend-paying stock has a yield that high, it’s often a danger sign. But don’t forget, unlike those stocks, these partnerships are required to make cash payouts by law. So, it’s highly unlikely they will ever eliminate — or even reduce — your cash distribution.”

So … this second “midstream profit partnership” has to be …

Atlas Energy Resources (ATN)

And it’s not really a “midstream partnership” according to my understanding of that term — “midstream” companies are generally those that run pipelines, gas gathering networks, refineries, or other services that process, package or transfer energy between the folks who get it out of the ground and the folks who use it. Atlas Energy Resources is an actual producer of energy, though it is also part of an interrelated group of companies that does own midstream assets and pipelines.

Atlas Energy does have some “legacy” gas assets in the Appalachians, but their big push is in the Marcellus Shale, the big shale gas field beneath Pennsylvania/NY/West Virginia that was heavily touted by many newsletters back when gas prices provided more optimism. The “sister” company that owns pipelines is Atlas Pipeline Partners (APL) — and that relationship does provide access to some distribution assets, but it also provides us with a cautionary tale about pipeline partnerships. APL has fallen from about $50 to $3.50 a share over the past year — I don’t know the whole story on this one, but it looks like at least part of the problem has been debt, they probably borrowed heavily to build their gathering system to prepare for the Marcellus Shale production ramp-up, and they’ve been recently selling off assets to try to cut debt levels.

That doesn’t mean there’s necessarily anything wrong with Atlas Energy just because their pipeline “sister” is somewhat distressed — just wanted to note that pipeline companies are very capital intensive when they’re expanding or constructing new pipelines, so it pays to be mindful of their costs and their access to capital. It’s true that they get to enjoy a nice cash flow from a slowly depreciating asset once the pipes are built, but it still costs a lot to build and lay those pipes.

And yes, ATN does yield about 18% — I won’t go into more detail on this one because we’ve got another one to get to, but I would note that it makes more sense to compare these guys not to pipeline partnerships or midstream service providers like MMP, but to other producing partnerships like Linn Energy (LINE), which is similarly structured, has a similar yield, and got a burst of attention from Barron’s back in December — or you could even compare it to many of the Canadian Royalty Trusts, though those come with the big 2011 tax change hanging over their heads, we talked about several of them when they were teased as offering “gas rebate checks” by the Oxford Club.

Most of the very high yield partnerships like these are, as one would assume, generally less predictable and stable than the partnerships that primarily own midstream assets and pipelines — which is why the dividend for ATN is close to twice as high as a typical top-tier MLP dividend these days.

One of the main differences between a producer and a midstream company is that, while both move somewhat when oil and gas prices move, a producer of gas is going to be much more dramatically impacted by changes in natural gas prices than is a pipeline operator that moves that product and charges set tolls based on long term contracts.

With that in mind, let’s take a look at the other “midstream profit partnership” Early recommends … it looks like it really is a “midstream” company this time …

“With $2.3 billion of projects coming on line in 2009, this partnership is poised to take off — and will
pay you a healthy 10% in the meantime

“Despite one of the most brutal fourth quarters the U.S. economy has ever seen, this partnership managed to increase its payout per unit by 6% — and for the year it increased its distributable cash flow by an incredible 38%!

“Going forward, cash flow is set to climb, thanks to major expansions of two current projects — including one in a crucial gas-collecting region of the Rocky Mountains.

“But the really exciting news is that management is looking into two significant new projects that could send earnings through the roof.

“The first is an offshore natural gas-gathering system and transportation pipeline — that would be capable of bringing more than a billion cubic feet of natural gas to onshore markets every single day.

“And don’t forget… these guys get paid based on how much volume they transport.

“The second project is an offshore oil port, complete with two transportation pipelines and various storage facilities, that would be capable of delivering 1.8 million barrels of oil per day to the U.S. by 2011.”

This one looks to be …

Enterprise Products Partners (EPD)

EPD did increase distributable cash by 38% in 2008, and raised the dividend 6% year over year. This is one of the larger MLPs, much larger than Magellan at about $10 billion in market cap (I think the only larger one is Kinder Morgan Energy Partners), and like most of the bigger, more stable partnerships it’s capital structure is more than half equity, with a bit less than half in debt.

One of Enterprise’s big projects is the Texas Offshore Port System (Teppco, another MLP that Income Investor has recommended, is also a partner in this) that was teased — it would be just the second big offloading terminal in the Gulf for crud oil, apparently, and I haven’t checked to see what the offshore gas gathering investment might be, but they do have a lot of pipe in the Gulf of Mexico already.

So … that’s all I’ve got for today, a few high-yielding partnership units that might be worth a gander. I won’t go into detail on the merits and challenges of Master Limited Partnerships here, except to say that investors should be aware of the tax benefits and special challenges of MLPs (especially for tax-deferred accounts). All of these topics — as well as some other MLPs, and the various MLP exchange traded funds and closed end funds, have been discussed pretty thoroughly in previous articles, including the aforementioned Bonded Trusts and Reagan Stimulus Dividends.

And those who like the idea of this kind of energy infrastructure investment but don’t like the MLP structure for tax or other reasons can also often buy shares in the general partners of these MLPs (the company that actually manages the pipeline, and owns some of the shares of the partnership — check the website of any MLP to see if they have a separate publicly traded general partner, some of them do, and they often also pay a dividend, albeit a smaller one), or in a non-partnership company that has big pipeline assets, like TransCanada.

These types of investments have been heavy favorites of dividend and energy-focused newsletters at least since they got clobbered in the oil and gas crash of last Summer and Fall, so we’ve seen them many times before, and I’ll probably end up writing about them again before too long.

And of course, if you’ve got an opinion about any of these MLPs or similar high income investment ideas, feel free to spit it out below.

For full disclosure, I currently own shares of Kinder Morgan Management and of Boardwalk Pipeline Partners, but do not own any of the other MLPs or similar investments noted above, and will not trade in any shares mentioned for at least three days.

Oh, and if you’ve got an opinion about Income Investor or the other Motley Fool newsletters, don’t forget to share it by submitting a review at the Stock Gumshoe Reviews site — it’s quick and easy, and it will help your fellow investors.